Posted onNovember 23, 2016
ABSTRACT: This study examines the effect of online reviews on new product sales for consumer electronics and video games. Analyses of panel data of 332 new products from Amazon.com over nine months reveal that the valence of reviews and the volume of page views have a stronger effect on search products, whereas the volume of reviews is more important for experience products. The results also show that the volume of reviews has a significant effect on new product sales in the early period and such effect decreases over time. Moreover, the percentage of negative reviews has a greater effect than that of positive reviews, confirming the negativity bias. Thus, marketers need to consider the distinctive influences of various aspects of online reviews when launching new products
and devising online marketing strategies.
KEY WORDS AND PHRASES: New product sales, online product reviews, panel data analyses, search vs. experience products, word of mouth.
Since the advent of the Internet, electronic word-of-mouth (eWOM) communication has become a major source of information for consumers planning to purchase new products. In fact, online product review Web sites outrank all other media in influencing customer decisions . User-generated content, especially online product reviews, helps consumers make informed decisions about purchasing new products and has become a major driving force in new product sales, making effective e‑marketing a critical success factor for new product launch. An increasing number of studies have found a positive relationship between online consumer reviews and product sales,
including books, movies, and video games [9, 19, 45]. To help marketers harness the power of eWOM, researchers have recommended various strategies on how to influence online product reviews, such as identifying the influential’s, encouraging advocates, and withholding product information [8, 12]. However, empirical findings about the effects of online reviews on new product sales are not always consistent.
In the online market, three metrics of consumer product reviews have been under close examination: volume, valence, and dispersion. The rationale behind measuring the volume of product reviews is straightforward discussions about a product in online forums lead to increased awareness among consumers. The valence, that is, the average ratings or the fraction of positive and negative opinions, carries important information about a product’s quality and serves as a recommendation for consumers. Existing studies on online WOM have used product ratings as a revenue-forecasting tool for “new products” such as television shows, movies, and books (e.g., [13, 19]).
The dispersion, or the spread, of communication measures how fast WOM spreads within and across communities .
With these new measurement tools at their disposal, researchers have conducted an increasing number of studies using data from online forums and championed eWOM as an important driver of sales of products such as movies, books, television shows, and video games in the online marketplace(e.g., [13, 19, 45]).
For instance, the volume of messages on newly released movies has proven to be a good predictor of their box office success .
The valence of online ratings posted during a movie’s opening weekend often emerges as the most important predictor of its revenue in subsequent weeks . The dispersion of conversation about weekly television shows across Internet communities also appears to have a strong correlation with the viewership of these shows .
Despite the evidence of eWOM’s influence on consumer purchases, there remain several important empirical and theoretical questions regarding the effect of online reviews on new product sales. First, most studies to date have dealt with information and entertainment products, such as books, movies, and television shows, which are often well promoted prior to their release and attract customer reviews within a short period following their release. While a few studies have included search products that have more technology elements [10, 34], researchers have not examined whether the
existing findings apply to the search products or compared the effect of online WOM across product categories. Moreover, the volume and valence of online reviews have received much attention, but how the volume of readings of online reviews or the page views by readers influence the sales of new products also warrants investigation.
Furthermore, some studies followed the online WOM for new products such as movies only for a few weeks or months in the pre- and post release period, which does not allow assessment of the effect of online WOM beyond the introduction period. Some of the products used in the previous studies are not new but have existed for some time, such as books. Although the new product diffusion theory suggests that WOM plays a greater role in the growth period than in the introduction stage [4, 39], recent studies indicate that eWOM can affect product sales early in the process [2, 11, 13]. Thus, research on the effect of online product reviews over time is particularly needed. Last, instead of exploring the effects of various metrics of online
WOM in a piecemeal fashion, a unified research framework to address these issues simultaneously would be desirable.
We draw from theories of innovation diffusion and consumer learning and propose an integrative framework and a number of testable hypotheses to address the above-mentioned research questions. Using panel data of 332 new products from Amazon.com over a period of nine months, we adopt fixed effects models with lagged variables to assess the effects of the metrics of online reviews on new product sales for both experience and search products. We also examine the page views by the followers, compare the effect of the percentage of positive versus negative reviews, and report several surprising results and novel insights into the role of eWOM in driving new product sales. These indings have meaningful implications for understanding the effect of online WOM on new product sales and for devising online marketing strategies.